Schafer: Talent is the key to Twin Cities' cluster of giant firms

Myles Shaver has been puzzling over the unusually large number of Fortune 500 companies in the Twin Cities almost since joining the faculty of the University of Minnesota's Carlson School of Management in 2001.

People throw out a wide range of theories, from the abundance of natural resources to winters so cold executives may as well spend extra time at the office.

But his research over the past couple of years points to a different conclusion, and a convincing one: Our region has enjoyed a "virtuous circle" of strong managers who build companies that grow. That, in turn, attracts more talented people, and then they help build more growing companies into big ones, and so on.

He is from Edmonton, Alberta — an even colder spot than the Twin Cities but with no similar set of big companies — and started his career at New York University. His colleagues at other universities can't easily grasp that a mid-sized metro area like the Twin Cities, one that is a long way from New York or Silicon Valley and has terrible winter weather, has so many corporate headquarters.

Shaver said even locals can be surprised by the data. In a presentation Shaver made last week at the university using 2011 data, he showed that Minnesota's 20 Fortune 500 companies made it No. 1 in such headquarters per capita, close enough to Connecticut that the top spot could flip-flop from one year to the next.

In looking at the data another way, by comparing the number of Fortune 500 corporate headquarters to the size of the state's overall economy, Minnesota topped the list by such a large margin that no year-to-year fluctuation in Fortune's ranking will knock Minnesota from the top.

Shaver looked back even further than the first Fortune 500 ranking in 1955, to documents like the 1929 Census of Manufactures. He found that in the ratio of headquarters officers to total manufacturing employees, once again Minnesota was near the top, right between New York and California.

It's a dynamic situation as well. Since Fortune's 1955 ranking, 40 Minnesota companies at one time or another moved onto the list, and at some point 31 moved off.

Minnesota's big headquarters companies, the likes of Target, 3M, UnitedHealth Group and Ecolab, are homegrown, too. Headquarters companies don't uproot somewhere else and plant themselves in the Twin Cities, like the Boeing Co. did in Chicago. Here, companies grow their way onto lists like the Fortune 500.

Shaver does not attribute that to a small set of visionary chief executives or other C-suite officers. He's still digging into the question and hopes to better verify talent as the key determining factor, but he stressed that the managerial talent he is talking about is the big pool of supervisors, managers, directors and vice presidents that staff these big organizations. "It flows from company to company, and not just within industries but across industries."

That's where his idea of a virtuous circle comes into it. A thriving company attracts top managerial talent and then some of that talent moves around the market. People may jump to a start-up opportunity, feeling comfortable that if the start-up doesn't work out they can always go look for a good job at one of the big companies.

Having a regional job market with lots of well-run employers creates opportunities for people to sharpen their skills and move ahead in their careers, and it's great also for the companies here to be able to recruit managers with experience at other well-managed companies.

Managers in the Twin Cities have a slew of good career options — plus have their kids in good schools, live in safe neighborhoods with manageable commutes to work and have lots of interesting choices of how to spend their free time.

So there's your circle, with big successful companies attracting talented people who tend to stay in the area, and those talented people then helping to build successful companies that grow to attract even more top talent.

There were a lot of heads nodding up and down as Shaver finished his remarks last week, amid encouragement to forge ahead with his research.

Bonnie Holub, a technology consultant who holds the Honeywell Endowed Chair in Global Technology Management at the University of St. Thomas, was one who sat in on Shaver's talk. She later called his work "a thoughtful, authoritative, quantifiable validation of a feeling many of us have had for a while" about the origins of our deep and vibrant corporate community.

But Shaver pointed out that no one should just assume that a great story that developed over many decades will endure decades longer. Virtuous circles like the one he described, he said, "are always at risk. The same thing that makes us a virtuous circle can make us a vicious circle. If this doesn't stay an attractive place for people to live, they will leave."